Shale Production To Keep A Lid On Oil Prices

Abu Dhabi

Growth in shale oil production in the US is expected to keep a lid on oil prices in the coming years, according to analysts.

Shale oil production from the US has been going up in the last few months as oil prices rise due to production cut agreement between Opec and non-Opec member countries and geopolitical tensions in the Middle East and elsewhere.

Currently, Brent is trading at around $65 per barrel and West Texas Intermediate at $62 per barrel.

“I don’t expect prices to rise above $70 per barrel, certainly not on a sustained basis until well after 2020. The reason for this is the rapid rise in US crude production, which will keep a lid on prices,” Spencer Welch, director of oil markets and downstream at IHS Markit in London told Gulf News by email.

He also said geo-politics will continue to impact the oil market in 2018.

“Currently there are a particularly high level of geopolitical risks in oil market, northern Iraq, Kurdistan, Venezuela, Nigeria, Libya, threat of US sanctions on Iran, Saudi reform, Saudi-Iran, Saudi-Qatar, the list goes on. It is almost inevitable that at least one of these will flare up on 2018,” Welch said.

When asked whether Opec members and Russia will prolong their cooperation in the coming years, he said it is very much possible as the successful implementation of production cut agreement has helped in rebalancing of oil markets and recovery in oil prices.

“I see no reason why this won’t continue longer, certainly through 2018 and into 2019. Both parties are benefiting so why end a successful relationship?”

UAE Energy minister Suhail Al Mazroui recently said oil producers led by Saudi Arabia and Russia are planning to draft an agreement on a long-term alliance by the end of this year to avoid major market shocks.

In its latest Short Term Energy Outlook the EIA (Energy Information Administration) sees US oil production averaging 10.7 million barrels per day in 2018, an increase of 1.4 million barrels per day from 2017.

“Strong non-Opec oil production growth looks set to challenge Opec and Russia’s ability to maintain price stability, at least in the short term,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Oil prices rose nearly $2 on Friday due to strong US job data as well as due to planned meeting between US president Donald Trump and North Korea’s Kim Jong Un.